An Unpredictable FTC Is Bad News

The Federal Trade Commission (FTC) announced this week they’d move to block Meta’s acquisition of Within, a virtual reality (VR) workout company. This is another troubling move by an increasingly partisan agency. The FTC further undermining predictability in the merger process is a concern and creates problems for consumers and businesses.

This is far from the first time Lina Khan’s FTC has tried to stifle mergers and acquisitions (M&As). The agency sent warning letters to companies engaged in M&As last year, and in a recent interview Lina Khan stated the agency should focus on labor goals when evaluating mergers. The current regime at the FTC also withdrew the Vertical Merger Guidelines and have moved to undermine consumer welfare in pursuit of more partisan goals.

This is all part of an unfortunate pattern. M&As can be pro-competitive, allowing companies to expand services at scale and helping attract investments for startups. M&As should be evaluated on a case-by-case basis to determine their potential benefits to consumers based on sober economic evidence, and the shift in thinking among Democrats at the FTC to stifle M&As is incredibly problematic. Instead of engaging in thoughtful analysis, the FTC appears determined to hit the brakes on M&A activity across the board.

The FTC’s reasoning in their filing against Meta doesn’t even pass the smell test. For example, one reasoning the FTC uses in their complaint is Within’s workout application, Supernatural, competes with Meta-owned Beat Saber, and an acquisition would lessen competition. The FTC attempts to draw a ridiculously small market with only apps on Meta’s VR headset. Of course, there are numerous workout apps and services available such as Peloton, MIRROR, other fitness video games, and Apple Fitness+, not to mention in-person gyms or outdoor exercise. Beat Saber is also a game where the goal is to hit cubes with a lightsaber and is not primarily an exercise app. Claiming Beat Saber is a fitness app is like claiming waving to your neighbor is part of your daily exercise routine.

The news of the FTC suing Meta to block the acquisition also comes at a strange time. Within 24 hours of the suit, Meta announced their first decline in revenue and. New competitors like TikTok have steered users away from Facebook, and updated privacy policies from Apple have negatively impacted Meta’s advertising business. Still, the FTC seems determined to contend that Meta is an unassailable monopoly despite these ongoing market pressures from competitors.

VR headsets are still very niche, and the FTC attempt to kneecap innovative services before they are widely available makes little sense. Meta is hardly the only company in this space with Apple and Microsoft are also investing heavily in VR technology. VR gaming only accounts for 0.4 percent of revenue generated by gaming hardware and software and has a relatively small user base compared to those who own consoles.

While proponents of stifling M&A activity claim it helps smaller companies compete, that is not true. A startup generally has the options of going bankrupt, being a standalone company (either public or private), or being acquired. Suppressing M&A activity won’t make it easier for a business to succeed as a standalone company. Instead, restricting the option of being acquired, which is a popular exit ramp for many, will just make it harder for startups to get off the ground. The National Venture Capital Association warns uncertainty and risk of government intervention could stop potential deals from ever leaving the board room.

The unwelcome return of the “big is bad” standard could hardly come at a worse time as Americans face an uncertain economic climate. More government intervention is the wrong prescription to these issues. The baby formula shortage prompted an FTC investigation (when in reality the government was standing in the way of addressing the issue). President Biden asked the FTC to investigate price gouging by oil and gas companies in response to high gas prices (again, look at the government’s policies). The FTC’s aggressive moves to undermine M&A predictability may be good politics on the left, but it is far from what is best for consumers.

Lina Khan’s FTC increasingly becoming untethered from its normal activities is also reflected in low staff morale. Many well-intentioned and talented individuals opt to work in public service to make a positive difference, and the partisan undertakings are clearly not sitting well with FTC staff. Like many controversial actions taken under Lina Khan’s tenure, the move to block Meta’s acquisitions of Within was a 3-2 partisan split.

The primary goal of this FTC appears to be unpredictable, and the uncertainty they are sowing limits both good and bad M&A activity. Left unchecked, startups will have more difficulty in attracting investors, larger companies won’t be able to improve upon and make innovative services more widely available, and consumers will ultimately bear the negative consequences of less innovation and fewer quality services.